Fannie Mae reported a staggering $72 billion net loss for 2009, underscoring
the challenges that still face the nation's largest mortgage financier and
offering more grim news for taxpayers who may ultimately pick up the bill.

The Washington-based company posted a $15.2 billion fourth-quarter loss
and said it asked the U.S. Treasury for another $15.3 billion to stay afloat,
bringing its total bailout tab past $76 billion. The quarterly results were
an improvement from the year-ago period, when Fannie reported a $25.2 billion
loss, but the annual loss surpassed the year-earlier loss of $58.7 billion.

While some analysts warn that efforts to modify loans are simply postponing
foreclosures and delaying losses, Fannie Chief Executive Michael Williams
said the company remained committed to preventing foreclosures. "Our overriding
objective is keeping people in their homes whenever possible," he said in
a statement.

The government took over Fannie and Freddie nearly 18 months ago as rising
loan defaults burned big holes in the companies' balance sheets. The government
has agreed to absorb unlimited losses for the next three years and up to
$400 billion after that. So far, the companies have taken a combined $127
billion in Treasury support, making this bailout one of the most expensive
from the financial crisis.

The Securities and Exchange Commission voted on Wednesday to limit short-selling
of stocks that are falling rapidly in price, The New York Times's Floyd Norris
reports. The rule was adopted on a 3-to-2 vote, with the two Republican members
saying that no case had been made to justify any further action against short-selling.

The limits would apply to any stock whose price has fallen at least 10 percent
during a day's session. After that, short-selling would still be legal but
not unless the sale was at a price higher than the best bid price then available.

The S.E.C. chairwoman, Mary L. Schapiro, said the rule would force short
sellers to stand in the back of the line, unable to sell shares until all
actual owners who wanted to sell had been able to do so.

"The reason this rule makes sense is because it recognizes that short-selling
can potentially have both a beneficial and a harmful impact on the market," she
said in a statement.

The rule makes no more sense than putting buy restrictions on stocks that
advance 10 percent. How many variations of this silly rule are we going to
see anyway?

In July 2008, they put short selling restrictions on Fannie Mae and Freddie
Mac. How well did that work out? Inquiring minds can tune into this real time
play by play call.

Shorting curbs cannot possibly help when the problem is solvency not liquidity.
In spite of the announcement, shares of Fannie and Freddie are down another
19% each as of 1:40 PM Central.

If the SEC intended to cause a short covering rally in the GSEs, it sure
failed miserably. Indeed, the market response shows just how futile the actions
of the SEC, the treasury department, and the Fed are.

When that action failed, the SEC restricted more financial short selling.

Big brother has now decided to step in and force the price of all financial
stocks up with this SEC
short sale order.

So now the SEC is issuing short sale restrictions on financials because
Bernanke says it's important for them to rise.

I have news for Bernanke and the SEC. This won't work. China had short sale
restrictions on and it did not stop the Shanghai index from falling over
50%. Insolvency cannot be cured by short sale restrictions and many of those
companies are insolvent.

All these short sale restrictions are going to do is create a vacuum. Once
the shorts are driven out these shares will plunge. And who wants to buy
a bond or provide capital knowing or even thinking share prices were artificially
inflated.

That action finally triggered a short squeeze. It continued for a week or
so. I commented on it a couple days later.

Fannie Mae is up another 25% today to $13.66 in the wake of Selective
Enforcement of Regulation SHO and Bernanke's statement: "It's important
for Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep
raising capital and aid the mortgage market."

This move in financials is going to fail spectacularly once the panic buying
ends, but for now the bulls are having a bit of fun.

Wow. I forgot that utterly stupid comment by Bernanke "It's important for
Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep raising
capital and aid the mortgage market."

Fannie Mae never did raise any more capital. That short squeeze was the beginning
of a violent end. Taxpayers have now bailed out Fannie Mae and Freddie Mac
to the tune of $127 billion dollars. Recently Congress upped the taxpayer liability
to infinity. Taxpayers are now on the hook for every penny of future losses.

How well did those short selling curbs work? History will be the judge.

As I said on July 16, 2008 ....

All these short sale restrictions are going to do is create a vacuum. Once
the shorts are driven out these shares will plunge.

Interestingly, my friend "HB" pinged me earlier today with a very similar,
but even more ominous comment.

"Short selling restrictions are a great indicator of imminent market crashes.
The biggest market declines in history all happened shortly after short selling
restrictions were introduced."

Don't count on that happening again, but if it does, you have fair warning.